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All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

Can my small business write off promotional/complimentary services as a tax deduction?

I own a fairly large dog training school that offers dog daycare, grooming, boarding, etc. We offer a complimentary visit to each new client as a type of promotional or marketing tactic. We also give away complimentary baths, nail trims, groomings, etc from time to time to our clients.

So here's my question; can these complimentary first time visits be considered marketing expenses? And can the other complimentary services be considered gifts?

Re: Can my small business write off promotional/complimentary services as a tax deduction?

You can deduct promotional costs, but there are a few things you should be aware of. You can deduct the your cost for physical items used in the promotion, such as supplies used in grooming the animals. However, you cannot deduct items that you included in advertising expense as part of other expenses such as cost of goods sold or supplies.

You cannot deduct anything for use of your time as an advertising expense unless the company is a corporation and you treat yourself as a W-2 employee in which situation your own pay would be a labor expense. You can deduct the cost of employee labor for these promotions as a payroll or labor expense as you would for any other labor cost because labor is exactly what your employees' time & effort in working these promotions is just as it would be in the course of ordinary business. Labor is a cost of doing business whether you pay for the labor during a promotion or during a visit with a paying customer.

What I would do in your situation is order whatever physical items are needed for the promotions and set that aside as a separate stock so that you can easily prove what was used for promotional/advertising purposes (this is your promotional deduction). This way you'll have a written record of what you ordered for the promotions which is required in this type of situation although you don't have to submit it unless you're asked by the IRS. Then, order & keep track of your normal inventory and deduct everything else as supplies, cost of goods sold, etc. as you normally would. For your labor, deduct it all in the appropriate labor category, either as an employee labor expense or a contract labor expense.

Re: Can my small business write off promotional/complimentary services as a tax deduction?

I should add here that any complimentary service you offer to attract people to your business or persuade them to give you their business is a promotional effort, and this also applies to promotional gifts, so all of the above can be deducted using the method I just described in my previous post.